The Securities and Exchange Commission’s (SEC) annual examination priorities report is used by broker-dealers, investment firms, and other registered entities to understand what issues or topics will be the focus of the Division of Examinations in the coming year.

The 2023 report, released Tuesday, laid out areas under the microscope this year, including compliance with the agency’s Marketing Rule and Regulation Best Interest (Reg BI). Each policy is expected to receive greater scrutiny since taking full effect in 2022 and 2020, respectively.

The SEC tends to evaluate compliance with new rules with a lighter, “good-faith-efforts” view in the first year, said Carlo di Florio, global advisory leader at ACA Group and a former SEC and Financial Industry Regulatory Authority regulator. In Years 2 and 3, however, “the training wheels come off, and the examiners dig into the substantive provisions and details” of a rule, he said. That will be the case with the Marketing Rule and Reg BI in 2023, he said.

The SEC’s report noted that in fiscal year 2022, “firms returned more than $50 million to investors in response to [the Division of Examination’s] proactive work.” It added examiners referred “numerous” cases to the SEC’s Enforcement Division, including the first action alleging violations of Reg BI and first case involving a broker-dealer’s alleged violations of the municipal adviser registration rule.

“That demonstrates the agency continues to leverage all its various options and tools in order to protect investors and return funds to harmed clients and investors,” said Ken Joseph, managing director at Kroll who formerly worked as a senior officer in the SEC’s Division of Examinations.

Di Florio said the report confirmed several areas of focus as examination priorities in 2023, including private funds; environmental, social, and governance (ESG); cybersecurity; and cryptocurrencies. These areas are also the focus of newly proposed rules and scrutinized by specialized agency exam and enforcement units, which come with more manpower and resources.

As such, there will be increased scrutiny of registered investment advisers (RIAs) who serve private funds. According to the report, issues of focus for such RIAs will be conflicts of interest, calculation and allocation of fees and expenses, compliance with the Marketing Rule, policies and practices involving use of alternative data, and compliance with the custody rule regarding audited financials and selection of auditors.

Di Florio said examiners will also launch examinations on private funds identified as “risky,” such as those that are highly leveraged; managed alongside business development companies; or that invest in commercial real estate, special purpose acquisition companies, or cryptocurrencies and other hard-to-value assets.

“If an adviser is investing in crypto assets, there is a high likelihood the regulators will focus on those advisers in the near term, especially as it relates to the adequacy of compliance policies and procedures, valuation, and disclosures,” Joseph said.